Will exempting MSMEs from the minimum wage requirement widen inequality?

Malaysia’s MSMEs make up 94–97% of all businesses and employ half the national workforce, yet the new national minimum wage of RM2,000 has sparked debate. While larger firms must raise wages to the new RM2,000, exempted MSMEs remain at the current RM1,700 floor, widening the wage gap. Critics warn this creates a two-tier labor market, leaving millions stuck in low-paying jobs with little hope of improvement.

The opposition has called this a "two-class system" of workers. Smaller firms fear losing employees to larger employers offering higher wages, potentially hurting their operations. Meanwhile, the jobs that remain at the lower level become less attractive, possibly driving more workers to foreign labor markets and putting downward pressure on wages.

Despite the government's claim this is a temporary measure, the long-term social cost is high – it deepens inequality and risks Malaysia’s K-shaped recovery where higher earners and larger companies prosper while lower-wage workers lag. Supporters argue MSMEs struggle with thin margins, but a single national minimum wage with targeted support for the smallest businesses could balance the need for fair wages with the ability of smaller firms to adjust.

Building a high-income, inclusive economy requires raising the legal floor for nearly half the workforce, not creating a separate wage tier.